Energy Myth: Renewables Cost More

Many folks, here in Minnesota and elsewhere, falsely believe that renewable energy simply costs more than fossil and nuclear energy. Perhaps these folks only remember when solar panels best adorned satellites and not homes. Perhaps the modest subsidies for wind and solar convince some that these technologies cannot stand on their own (nevermind the long-running subsidies for fossil fuels). Perhaps the price curves for these technologies have simply outpaced perception.

Whatever the reason, the thought that renewables cost more than fossil and nuclear power stands remarkably at odds with the popularity of these technologies.

We can measure the cost of energy in at least three ways: the cost of new capacity, the cost of energy at a given place and time on the grid, and the real cost of energy from a generation asset over time.

The cost of new generation capacity to a utility will vary widely by site costs, materials, and labor. In the Upper Midwest, wind is the cheapest form of new capacity, with long-term contracts in this neck of the woods at less than $20/MWh.

The cost of solar capacity in Minnesota has already outpaced certain kinds of generation. Fast-ramping gas turbines, which can turn on quickly to meet the peak of demand on summer afternoons, are among the most expensive to build. Back in 2013—ages ago in terms of the solar cost curve (see charts below)—an administrative law judge found that a series of solar installations could serve the same purpose, but more cost-effectively.

Solar system costs, adjusted for inflation, at https://www.nrel.gov/news/press/2017/nrel-report-utility-scale-solar-pv-system-cost-fell-last-year.html

Unlike fossil and nuclear plants, wind and solar burn no fuel and bear no fuel costs; once installed, operations and maintenance costs comprise only a small portion of the cost stack. These features mean that renewables will nearly always comprise the cheapest form of energy at any given time on the grid: if the wind is blowing or the sun is shining, then the spot price of electricity in regional markets usually plummets.

The levelized cost of electricity (LCOE) of a generation asset refers to the cost of electricity over the lifetime of the asset. A number of factors comprise the ratio, including the initial cost of the asset, its cost of capital, and its capacity factor (basically, how often it’s on).

A recent study from Lazard shows that the LCOE for utility-scale wind and solar outperforms fossil and nuclear power outright and unsubsidized. The mean estimate for utility-scale solar LCOE in 2017 clocks in at $50/MWh; wind at $45/MWh. By comparison, nuclear sits at a whopping $148; coal at $102; and combined-cycle natural gas (where industrial services utilize the plant’s excess heat) at $60.

 

The remarkable value of wind and solar

The cost of energy is only half of the real economic equation. We need to know the other half, value, before we can make an economic decision. Luckily, some smart folks have worked on this very question.

Whenever new capacity comes online, it usually displaces some existing forms of energy. Here in Minnesota, the displaced energy has usually been coal. Xcel Energy converted its Black Dog plant in Burnsville to natural gas in 2015. Great River Energy, which serves 28 member cooperatives in the state, has replaced most of its uneconomic coal fleet with wind and natural gas. In Northern Minnesota, Minnesota Power has closed, converted or idled coal plants too. This trend holds nationally, too.

We can quantify the value of a power plant’s contribution to the grid with a metric called the levelized avoided cost of electricity (LACE). The U.S. Energy Information Agency (EIA) notes that LACE “reflects the the costs that would be incurred to provide the electricity displaced by a new generation project as an estimate of the revenue available to the plant.” LACE, like LCOE, factors in the price of money over time. A comparison of LACE to LCOE compares value to cost.

While this somewhat crude ratio cannot account for a utility’s need for a diversified portfolio, it can explain current trends and project future ones. EIA has summarized this aspect of its annual report for the three most cost-competitive generation assets: solar, wind, and combined-cycle natural gas.

The trends are remarkable. Here in the Upper Midwest, EIA projects solar to continue to be economical in 2020, 2030, and 2040. Wind follows the same pattern, though it is more sharply competitive in 2020. Gas does not register as economic—i.e., LCOE exceeds LACE—in 2020 or 2040 for our region, but does in 2030. We shouldn’t assume that Minnesota utilities will not still build gas plants (or convert coal to gas), because gas will remain useful as a dispatchable resource. But, we should note that EIA, which has historically underestimated renewables, projects solar and wind to outcompete fossil and nuclear generation on price, right here in the Upper Midwest.

Finally, much of the value from renewables comes from what they don’t produce—smog and greenhouse gases. Scientists at the Lawrence Berkeley Lab, part of the US Dept. of Energy, calculate that from 2007 to 2015, wind and solar saved between 3,000 to 12,700 lives, and from $29.7 to $112.8 billion in air-quality (in 2015 dollars). Cumulative climate benefits vary from $5.3 to $106.8 billion. Of the ten US regions identified, the Upper Midwest benefited the second-most from avoided health and climate costs.

Annual benefits by region, at https://www.nature.com/articles/nenergy2017134.epdf

So, no, renewables don’t cost more than fossil fuels—here in Minnesota or elsewhere in the country. They cost less to install. Their electricity costs less to buy on the open market. They cost less over time. They add great value to the grid. And, perhaps most importantly, they save thousands of lives and billions of dollars worth of smog and greenhouse gases. Seems like a good investment to me.